A Model to Evaluate the Financial and Operational Risk of the UK Universities

ABSTRACT The UK higher education sector plays a pivotal role in economic and societal development, generating significant financial returns, fostering innovation and addressing workforce needs. However, the sector faces mounting challenges threatening its financial and operational resilience. These challenges include declining real‐term domestic tuition income, increasing reliance on volatile international student markets, and escalating operational costs. This study develops a framework to assess the financial and operational risk of UK universities, employing indicators such as liquidity days, net operating cash flows, recruitment power and student satisfaction rates. Using data from 2016 to 2023 and linear regression models for projections, and machine learning random forest for validation, the study categorises universities into four risk tiers: Stable, Moderate Risk, At Risk and Critical Risk. Findings reveal a substantial proportion of universities are in moderate to high operational risk tiers, with financial vulnerabilities projected to increase, particularly under declining international enrolments. The interplay between financial and operational risks exacerbates sector‐wide instability, threatening long‐term viability. The study highlights the urgent need for diversified revenue streams, cost efficiency and strategic interventions to mitigate risks. This framework offers actionable insights for policymakers and university management, ensuring institutions maintain their critical contributions to the economy and society amidst an evolving higher education landscape.